Monday, June 1, 2009

The 100 billion dollar payoff to the UAW

The United Auto Workers went all out for candidate Obama in the 2008 election, and Obama is now repaying the union with about a hundred billion dollars in taxpayer money. Talk about return on investment!

The so-called bailout of Chrysler and GM is not about saving the companies - that could have been done more effectively with a conventional Chapter 11 bankruptcy filing similar to that which most of the airline industry went through in the past several years. The problem was, that would have put unsupportable union wages and benefits at risk.

The airline and auto industries were both driven to bankruptcy by union demands that amounted to a choice between bankruptcy now or later. If the companies didn't agree to past contracts, strikes would have killed them on the spot, so it was always better to cave then and postpone the inevitable until later.

Well, later finally became now, and virtually the entire airline industry endured bankruptcies that wiped out stockholders, but resulted in reductions in extravagant union contracts that kept the companies from going completely out of business.

That could have been the route the auto industry took as well, but that didn't suit the UAW. With their political ally in the White House, the unions made a special deal that will cost the American taxpayers about $100 billion to enable these moribund companies to continue to fund lavish wages and benefits for current employees and retirees, but will do little to improve their competitiveness in the long run.

We now have a government run auto industry that will continue to lose tens of billions a year making cars the government wants, not what customers want. Taxpayers will be asked to pony up again and again as this financial black hole continues to suck in and destroy capital that could have been used for productive investments.

But this is not to rescue the companies, it is to pay off their unions. For the millions they spent to elect Barack Obama, they are getting a thousand to one return on their investment. Democrats love to bleat about corporate corruption. The auto union bailout is an example of political corruption on a colossal scale.

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